One of the suspects in an international hedge fund fraud case has apparently
shot himself while being arrested by police on the Spanish island of
Mallorca.

Dieter Frerichs, who was the managing director of K1 Group, a German fund of hedge funds, committed suicide to avoid being extradited to Germany to face allegations, according to Spanish police.

The financier was due to be extradited under the orders of a Madrid court following a request by prosecutors in the German city of Wuerzburg. The prosecutors wanted to question Frerichs about the workings of K1 which was allegedly being run as a €300m Ponzi scheme.

Banks, including Barclays and JP Morgan, are thought to have millions of pounds of exposure to the hedge fund, both through its private clients and via loans for leverage. Prosecutors claim that the fund's founder, Helmut Kiener, took funds from the clients of major banks and pledged to invest them in hedge funds. Mr Kiener faces accusations of using the money to fund a lavish life-style that included private jets and property in America.

Mr Kiener, has been detained without bail in his home town of Würzburg since in October last year. A spokeswoman for police in Mallorca told Bloomberg that officers had arrived at Mr Frerichs' house in Palma at 11.30 on Saturday morning, where they found him sunbathing. He took out a firearm and ran into the sea where he died.

Mr Frerichs had been arrested in April and was conditionally released until a second arrest order came through in May.